This is our weekly market update, starting with the US, Europe, Asia and Australia, as well as Oil and Crypto.
The S&P 500 soared to fresh highs on Friday, but fewer stocks have been participating in the rally, stirring worries that recent gains could reverse if the market’s leaders stumble.
We are talking market breadth, or the number of stocks taking part in a broader index’s rise. A high breadth is often viewed as a healthy sign by investors as it shows gains are less dependent on a small cluster of names.
The reverse, a narrowing, on the other hand is a warning. And in fact, the Magnificent Seven have accounted for nearly 60% of the S&P 500’s gain this year, according to Dow Jones Indices.
The problem is the narrow group of stocks powering the market could make it more vulnerable to swift declines if an earnings disappointment or other issue hits its biggest stocks. While most of the megacaps have powered higher this year, shares of Tesla have fallen 22%, the third-worst performer in the S&P 500, demonstrating how quickly the market’s superstars can fall out of favor.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
This is our weekly market update, starting with the US, Europe, Asia and Australia, as well as Oil and Crypto.
The S&P 500 soared to fresh highs on Friday, but fewer stocks have been participating in the rally, stirring worries that recent gains could reverse if the market’s leaders stumble.
We are talking market breadth, or the number of stocks taking part in a broader index’s rise. A high breadth is often viewed as a healthy sign by investors as it shows gains are less dependent on a small cluster of names.
The reverse, a narrowing, on the other hand is a warning. And in fact, the Magnificent Seven have accounted for nearly 60% of the S&P 500’s gain this year, according to Dow Jones Indices.
The problem is the narrow group of stocks powering the market could make it more vulnerable to swift declines if an earnings disappointment or other issue hits its biggest stocks. While most of the megacaps have powered higher this year, shares of Tesla have fallen 22%, the third-worst performer in the S&P 500, demonstrating how quickly the market’s superstars can fall out of favor.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Investors hate surprises and we got many this week – to the point where I begin to wonder whether markets are fundamentally broken as they were driven higher by good results from some of the magnificent seven, despite the shock revelation of mounting losses from commercial property by little-known banks in New York and Tokyo. And then the US jobs number came in so hot, as to lift bond yields while Central Bankers this week played a cautious hand, suggesting that they need to see more evidence before they start cutting rates, against market expectations.
Let’s start with commercial property. The problems particularly the office sector are well known: a combination of remote work and ageing buildings has pushed up vacancy rates and pushed down valuations; office property values in the US fell more than 20 per cent last year.
That’s a problem for landlords that must refinance loans against commercial property; about $US2.2 trillion of loans from the US and European commercial real estate sectors will come due between now and 2025.
US property billionaire Barry Sternlicht told a conference this week the US office property sector was worth $US3 trillion, and now it’s worth $US1.8 trillion. “There’s $1.2 trillion of losses spread somewhere, and nobody knows exactly where it all is.” At least some is in America’s regional banks, where commercial property loans account for about 30 per cent of all loans, compared with 6.5 per cent at large US banks.
Regional US lender New York Community Bancorp and Japan’s Aozora revealed problems with commercial property loans and dropped their share prices significantly underscored a critical question: is this the start of something bigger? Morgan Stanley strategist Mike Wilson says that even if banks holding this debt can cope with the losses, it crimps their ability to lend to other businesses.
But if there’s one broader lesson from the sudden re-emergence of commercial property fears, then it’s this: we still haven’t cleared out the excesses that built up in the era of very low interest rates, and were compounded during the pandemic period of extreme froth.
The world is now so indebted, and so financialised, that these cycles aren’t allowed to occur. With “households and corporates becoming hooked on leverage”, we can’t let bubbles pop because they’re “the essence of our economies”.
This is why investors are cheering the prospect of rate cuts with such gusto. And it’s why the fear of higher-for-longer interest rates – which the Federal Reserve reminded the world of on Thursday by killing off hopes of a March cut – is still real.
“The market has been horribly wrong about the near-term trajectory of Fed policy and this is another instance where that’s the case,” said Kevin Gordon, senior investment strategist at Charles Schwab in New York.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Digital Finance Analytics (DFA) Blog
Markets Play Chicken With All Time Highs, As Risks Rise!
Investors hate surprises and we got many this week – to the point where I begin to wonder whether markets are fundamentally broken as they were driven higher by good results from some of the magnificent seven, despite the shock revelation of mounting losses from commercial property by little-known banks in New York and Tokyo. And then the US jobs number came in so hot, as to lift bond yields while Central Bankers this week played a cautious hand, suggesting that they need to see more evidence before they start cutting rates, against market expectations.
Let’s start with commercial property. The problems particularly the office sector are well known: a combination of remote work and ageing buildings has pushed up vacancy rates and pushed down valuations; office property values in the US fell more than 20 per cent last year.
That’s a problem for landlords that must refinance loans against commercial property; about $US2.2 trillion of loans from the US and European commercial real estate sectors will come due between now and 2025.
US property billionaire Barry Sternlicht told a conference this week the US office property sector was worth $US3 trillion, and now it’s worth $US1.8 trillion. “There’s $1.2 trillion of losses spread somewhere, and nobody knows exactly where it all is.” At least some is in America’s regional banks, where commercial property loans account for about 30 per cent of all loans, compared with 6.5 per cent at large US banks.
Regional US lender New York Community Bancorp and Japan’s Aozora revealed problems with commercial property loans and dropped their share prices significantly underscored a critical question: is this the start of something bigger? Morgan Stanley strategist Mike Wilson says that even if banks holding this debt can cope with the losses, it crimps their ability to lend to other businesses.
But if there’s one broader lesson from the sudden re-emergence of commercial property fears, then it’s this: we still haven’t cleared out the excesses that built up in the era of very low interest rates, and were compounded during the pandemic period of extreme froth.
The world is now so indebted, and so financialised, that these cycles aren’t allowed to occur. With “households and corporates becoming hooked on leverage”, we can’t let bubbles pop because they’re “the essence of our economies”.
This is why investors are cheering the prospect of rate cuts with such gusto. And it’s why the fear of higher-for-longer interest rates – which the Federal Reserve reminded the world of on Thursday by killing off hopes of a March cut – is still real.
“The market has been horribly wrong about the near-term trajectory of Fed policy and this is another instance where that’s the case,” said Kevin Gordon, senior investment strategist at Charles Schwab in New York.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Well, in another volatile week, the S&P 500 posted a record high close on Friday of 4839.81 for the first time in two years erasing the last of a nearly 25 per cent between its record high close of 4,796.56 on Jan. 3, 2022 and its low in October 2022.
The S&P 500 has been in a bull market since it closed at its low on Oct. 12, 2022, fueled by a rally in chipmakers and other heavyweight technology stocks on optimism around artificial intelligence.
The Dow Jones Industrial Average, which also hit a record closing high on Friday, had already confirmed on Dec 13, 2023 that it had been in a bull market since Sept. 30, 2022.
Meanwhile, while the Nasdaq composite recovered 43% in 2023, it would need to rise another 4.8% to return to its record high close of 16,057.4437, reached on Nov. 19, 2021.
On Friday, the S&P 500 jumped 1.23% The Nasdaq jumped 1.70%, while Dow Jones Industrial Average rose 1.05%.
But the questions of Central Bank rate cuts, QT, and whether stocks are still over valued hangs over the market like a bad smell. Volatility will remain the main game for some time to come.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Well, in another volatile week, the S&P 500 posted a record high close on Friday of 4839.81 for the first time in two years erasing the last of a nearly 25 per cent between its record high close of 4,796.56 on Jan. 3, 2022 and its low in October 2022.
The S&P 500 has been in a bull market since it closed at its low on Oct. 12, 2022, fueled by a rally in chipmakers and other heavyweight technology stocks on optimism around artificial intelligence.
The Dow Jones Industrial Average, which also hit a record closing high on Friday, had already confirmed on Dec 13, 2023 that it had been in a bull market since Sept. 30, 2022.
Meanwhile, while the Nasdaq composite recovered 43% in 2023, it would need to rise another 4.8% to return to its record high close of 16,057.4437, reached on Nov. 19, 2021.
On Friday, the S&P 500 jumped 1.23% The Nasdaq jumped 1.70%, while Dow Jones Industrial Average rose 1.05%.
But the questions of Central Bank rate cuts, QT, and whether stocks are still over valued hangs over the market like a bad smell. Volatility will remain the main game for some time to come.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Things got interesting this week on the markets, as U.S. stocks closed barely changed on Friday, after wavering between modest gains and losses driven by mixed bank earnings offset cooler-than-expected inflation news that buoyed hopes for interest-rate cuts from the Federal Reserve.
After briefly topping 4800 points in early trading, the S&P 500 fluctuated, slipping modestly negative in the final hour before edging higher at the close. And note that US markets will be closed on Monday for Martin Luther King Day.
Expectations for a rate cut of at least 25 basis points by the Fed in March moved up to 79.5%, according to CME’s FedWatch Tool, from 73.2% in the prior session. Friday’s data also sent Treasury yields lower, although recent comments by some central bank officials have pushed back on any potential rate cuts.
On Friday, data showed U.S. producer prices unexpectedly fell in December as the cost of goods such as food and diesel fuel declined, while prices for services were unchanged for a third consecutive month, in contrast to Thursday’s hotter-than-expected consumer inflation reading. The headline inflation rose more than expected to 3.4% from 3.1% printed a month earlier.
But all in all, yesterday’s inflation report was less than ideal, and the market reaction was mixed. The US 2-year and 10-year first rose then fell, whereas you would expect a swift shift in dovish Fed expectations following a bigger-than-expected jump in US headline inflation. The 2-year was last at 4.146 and the 10-year 3.944.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Things got interesting this week on the markets, as U.S. stocks closed barely changed on Friday, after wavering between modest gains and losses driven by mixed bank earnings offset cooler-than-expected inflation news that buoyed hopes for interest-rate cuts from the Federal Reserve.
After briefly topping 4800 points in early trading, the S&P 500 fluctuated, slipping modestly negative in the final hour before edging higher at the close. And note that US markets will be closed on Monday for Martin Luther King Day.
Expectations for a rate cut of at least 25 basis points by the Fed in March moved up to 79.5%, according to CME’s FedWatch Tool, from 73.2% in the prior session. Friday’s data also sent Treasury yields lower, although recent comments by some central bank officials have pushed back on any potential rate cuts.
On Friday, data showed U.S. producer prices unexpectedly fell in December as the cost of goods such as food and diesel fuel declined, while prices for services were unchanged for a third consecutive month, in contrast to Thursday’s hotter-than-expected consumer inflation reading. The headline inflation rose more than expected to 3.4% from 3.1% printed a month earlier.
But all in all, yesterday’s inflation report was less than ideal, and the market reaction was mixed. The US 2-year and 10-year first rose then fell, whereas you would expect a swift shift in dovish Fed expectations following a bigger-than-expected jump in US headline inflation. The 2-year was last at 4.146 and the 10-year 3.944.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Investors’ hopes were running high into the start of 2024, but the S&P 500 index started the year by stripping 2.2 per cent off its December 2023 peak while the all-important 10-year US Treasury yield has jumped back up from a recent low of 3.78 per cent to around 4 per cent. Investors have been cautious in the opening sessions of 2024, as they awaited further clarity on when interest rate cuts will begin, and how quickly they will happen.
Hopes for a swift pace of easing had triggered a blistering rally in the final weeks of 2023, which took the S&P 500 to within 1% of its all-time high, so any undermining of that hypothesis has been a cue for profit-taking.
So, no surprise then we could be in for a rocky stretch in the markets.
Friday’s session saw markets gyrate throughout the day, as investors absorbed the latest macroeconomic data which offered contrasting views on when interest rate cuts may begin.
Looking further ahead, investors will parse the message from the Fed at the end of its Jan. 30-31 policy meeting. Markets expect the central bank to leave rates unchanged this month, and bets on a cut at the March meeting have been pared back.
The 10-year German Bond is a important benchmark, and was last at 2.1740, up 3.28% perhaps sending a message globally about the direction of interest rates.
The Australian share market rounded out its worst start to the year in more than a decade on Friday, as the broad rally staged in the final months of 2023 lost steam.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Digital Finance Analytics (DFA) Blog
The Volatility Dragon Has Not Been Slayed: Brace For More Firey Swings!
Investors’ hopes were running high into the start of 2024, but the S&P 500 index started the year by stripping 2.2 per cent off its December 2023 peak while the all-important 10-year US Treasury yield has jumped back up from a recent low of 3.78 per cent to around 4 per cent. Investors have been cautious in the opening sessions of 2024, as they awaited further clarity on when interest rate cuts will begin, and how quickly they will happen.
Hopes for a swift pace of easing had triggered a blistering rally in the final weeks of 2023, which took the S&P 500 to within 1% of its all-time high, so any undermining of that hypothesis has been a cue for profit-taking.
So, no surprise then we could be in for a rocky stretch in the markets.
Friday’s session saw markets gyrate throughout the day, as investors absorbed the latest macroeconomic data which offered contrasting views on when interest rate cuts may begin.
Looking further ahead, investors will parse the message from the Fed at the end of its Jan. 30-31 policy meeting. Markets expect the central bank to leave rates unchanged this month, and bets on a cut at the March meeting have been pared back.
The 10-year German Bond is a important benchmark, and was last at 2.1740, up 3.28% perhaps sending a message globally about the direction of interest rates.
The Australian share market rounded out its worst start to the year in more than a decade on Friday, as the broad rally staged in the final months of 2023 lost steam.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
